What's Really Happening Inside the Dell, EMC Merger

 
 
By Chris Preimesberger  |  Posted 2016-05-08 Print this article Print
 
 
 
 
 
 
 

NEWS ANALYSIS: As the merger chugs to its conclusion, employees fret for their jobs, China is causing ire and a lot of corporate wrinkles need to be ironed out.

LAS VEGAS—If you ask any of the top brass at either Dell or EMC, they are all well-rehearsed in telling you that everything is perfectly "on track" and "in order" in bringing two of the world's largest and most successful IT hardware/software vendors together under one corporate roof by next fall.

To that we say, "Thank you very much, and, by the way, nice try." Our reaction, along with a lot of people to whom we spoke at the recently concluded EMC World 2016, is—and I quote—"Bull Pucky." While it may actually be on a track to close around the time it is supposed close, this does not mean it is actually a smooth transition.

Mergers, especially those of this scale, cannot zoom along as if on rails. This is patently impossible. Two giant Tyrannosaurus Rexes who have been gobbling up other animals and companies for years—and bloodied each other in some big fights in the storage markets—could hardly step politely onto the same container ship and sail off into the sunset as BFFs. Ask AOL and Time Warner, Hewlett-Packard and Compaq or Oracle and Sun Microsystems if you don't believe this.

Friction Is Carefully Hidden

There is friction wherever one looks at Dell and EMC. There are simply too many proprietary charging plugs and codebases that don't fit or don't work together. There are too many national and foreign regulators to satisfy, especially in China at this time. There are too many overlapping product lines, too many similar jobs, too many salespeople competing with each other and too many redundant solution partners.

There are too many clashing marketing people, quizzical and dissatisfied EMC investors and too many prickly C-suite egos to make this $67 billion business deal merely a sweet bedtime story.

There is not enough of a cloud strategy within these two companies to make a dent in the huge market now controlled by Amazon, Google, Microsoft, Oracle and others. Dell has had some early success with Dell Cloud and EMC has Virtustream, which is a promising service, but it is unproven. This is a concern that will have to be addressed.

Don't forget the cost of this merger. Dell is trying to decide which divisions to cut and which to keep going forward; this is always a pain point. The latest worry is whether Dell should sell off its software (the former Quest Software, which it bought for $2.3 billion in 2012) and security (SonicWall) franchises. Thousands of employees are fretting those decisions.

Dell May Sell Bonds to Cover Bank Debt

That's certainly not all; Dell apparently is going to have to sell bonds to help cover the debt it is incurring.

That's just great. Remember, Dell went private in 2013 and is taking EMC private, so this move is akin to selling stock: Dell is ostensibly planning to cover $24 billion of its $49.5 billion bank debt with corporate bonds. This is hardly an exemplary way to baptize such a massive new company and send it back into the world.

So forgive us if we don't entirely believe the narrative that everything is peachy. Remember, this is an election year, and skepticism is high on the agenda everywhere.

However, not all the data points in the merger are questionable. There are some interesting parallels between these two companies, and they see the global IT markets in similar ways.

Both have been very successful in selling IT hardware. Both were founded the same year, 1984; one in the suburbs of Boston and the other in a dorm room at the University of Texas in Austin. Both were both started by forward-looking men with progressive ideas about IT hardware: Dell in personal computers and EMC in enterprise data storage.

Dell, EMC, Share 'Buy vs. Build' Approach

Both companies have been developed largely on the strategy of buying intellectual property in lieu of developing it in-house, although both have created their own IP over time and been investing more capital into homegrown products lately.

Both have been very successful at identifying talent elsewhere and bringing it inside their own firewalls. VMware, RSA Security and Pivotal are three good examples for EMC, and Compellent, EqualLogic and Boomi are three of the many clear-cut successes acquired by Dell.

These certainly are not dunderhead enterprises. EMC was very good at playing hardball with its installed base, second only to Oracle in the manner in which it twisted arms to wring out additional sales each quarter. Make no mistake about it: EMC was extremely successful in storage sales, recording some nine years of double-digit sales growth and leading the world for more than a decade in external storage hardware and software markets.

Dell has been among the top five sellers of personal computer sales for a generation. It has been growing its enterprise servers, storage and networking businesses for nearly a decade, and it's working hard to establish itself as an enterprise cloud infrastructure provider.

Now, as they proclaimed last Oct. 11, the two IT giants will continue their relationship as a married couple, with the wedding apparently set for this next October.

Can This Marriage Work?

How will this relationship, the largest-ever union of two IT companies, have to work to be successful? Huge companies with multiple thousands of employees tend to be good at doing what they've always done, but are less successful at recognizing changes in the markets and then turning quickly to satisfy those new developments. This is what small, agile startups are particularly good at doing.

New-gen IT buyers in their 20s and 30s, at least those contacted by eWEEK, are shrugging off this deal. They're never going to buy what this new company produces on a wide scale, unless the new Dell Technologies can convince them otherwise—and that will be a tall order. This is a large company that's going to sell to other large companies, and, if it can do that on a global basis, maybe that will be enough to be successful. But the midrange is where the growth in IT will be for the next two decades.

Dell has been successful in the past by marketing its PCs and servers to midrange companies and SMBs, and it plans to continue. But this isn't your father's Dell Computer anymore; the new Dell Technologies wants to be all things to all IT buyers, and that is a task no previous company has been able to accomplish.

Telling People What They Want to Hear

Like the U.S. presidential candidates, who tell voters what they want to hear every four years, Dell and EMC are telling developers, partners, channel sales and service providers and potential customers what they want to hear. In the best of worlds, it all works out according to plan and Dell Technologies becomes a true all-encompassing, do-it-all IT warehouse to be admired.

That could happen. But when the wedding bells ring and the merger is done, other stuff can also happen. After all, businesses all break down to people, and people are notorious wild cards.

Pictured: EMC CEO and Chairman Joe Tucci (left), Dell CEO and founder Michael Dell (photo courtesy of EMC)

 
 
 
 
Chris Preimesberger

Chris Preimesberger is Editor of Features and Analysis at eWEEK. Twitter: @editingwhiz

 
 
 
 
 
 
 
 
 

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